What’s in store for Knoxville in 2018?

1/18/2018

Where will the swirl of economic currents drive Knoxville over the next year? If the area can avoid a few rocks, indications are for clear weather ahead, according to several local analysts.

Growth looks steady, driven in part by news such as Discovery Communications’ Jan. 9 announcement it will move its national operations headquarters to the Scripps Networks Interactive campus in Knoxville.

The federal tax cut approved in December spurred several companies to announce raises and bonuses, and its impact is likely to continue locally.

“The result of the tax cut, combined with what was already pretty solid growth in the economic recovery, says that 2018 is going to be a pretty good year,” said Bill Fox, director of the Boyd Center for Business and Economic Research at the University of Tennessee’s Haslam College of Business.

Mark Field, senior vice president of chamber development for the Knoxville Chamber of Commerce, said talks with members lead him to believe the local business scene is “the most exuberant I’ve seen it in several years,” which he attributes to continued easy lending and the expectation of deregulation and lower business taxes.

“I think they have a renewed expectation from Washington that Congress and the president both are addressing that,” he said.

Tom Ballard, chief alliance officer at PYA and author of the Teknovation blog, said while the stock market’s long rise has boosted businesses, some analysts are forecasting a “correction” — a sudden drop — in the near future. If that occurs, the fallout might diminish local appetites for risking new ventures.

Local employment growth, while good, has slowed a little — because it’s hard to sustain job growth when the unemployment rate is already so low, Fox said.

The federal Bureau of Labor Statistics reported Tennessee’s unemployment rate in November to be 3.1 percent. That’s 1 percentage point below the national average, and 2 points below the November 2016 rate.

Unemployment rate, growth

For the last six years Tennessee’s unemployment rate has been lower than the nation’s as a whole, Fox said.

Growth in Knoxville is a little slower than in Nashville or Chattanooga, but is still strong, he said. Manufacturing and construction are likely to keep doing well here, Fox said.

“But in fairness, they’re still below where they were a decade ago,” he said.

Restaurants, hotels and entertainment — except for movies — are seeing steady local growth, but retail stores are seeing a slowdown that mirrors national trends, Fox said.

“This is signaling the impact of ecommerce,” he said.

Sales, growth at Scripps and Regal

At the end of August, Knoxville based Scripps Networks Interactive and Maryland-based Discovery Communications announced that Discovery would buy Scripps in a cash-and-stock deal worth $14.6 billion. The deal includes Discovery’s assumption of Scripps’ $2.7 billion debt, and is expected to close in early 2018. That left Scripps’ roughly 1,000 Knoxville employees wondering how the sale would affect their jobs.

Then on Jan. 9, Discovery announced it would move its national operations headquarters to Knoxville.

Though the announcement did not guarantee any individual jobs, it brings the likelihood of expansion rather than closure of the local Scripps campus.

“It will continue to house the major Scripps brands and creative digital teams along with corporate functions,” a Discovery news release said. The move came with unspecified state incentives.

That’s only one of several big local buys from which the effects will unfold over the next year.

The next largest is probably the December announcement from Regal Entertainment Group that it would sell out to British-based Cineworld Group in a $5.9 billion deal, including assumption of Regal’s debt.

The purchase isn’t expected to affect Regal’s agreement with the city to move its main office into a nine-story building at 101 E. Blount Ave. on Knoxville’s redeveloping South Waterfront.

Regal has 561 theaters, including 13 in Tennessee. One of those is the West Town Mall 9, which closed Jan. 2 and is expected to reopen in the summer as a Cinebarre concept dine-in theater with luxury recliners, offering a full-service restaurant and bar. Regal already operates eight Cinebarre theaters, and plans to convert three more this year, including West Town.

The sale of big locally owned companies could be viewed as “glass half empty” or “half-full,” Ballard said.

“There are going to probably be some people that will do well after those acquisitions,” he said. “One of the things that one could look for is what may happen in terms of executives that leave those companies, and could that help spur on the entrepreneurial ecosystem here in Knoxville.”

Ruby Tuesday

In early January, the new owner of Ruby Tuesday announced the hiring of Ray Blanchette as CEO, in hopes of turning around the struggling restaurant chain. Maryville-based Ruby Tuesday announced in mid-October it would sell out to NRD Capital, an Atlanta private equity firm.

The $335 million deal included assumption of Ruby Tuesday’s debt, making it worth $146.3 million to shareholders. But in November, at least eight shareholders filed class-action suits to stop the sale, arguing the company failed to pursue better offers from other buyers. Ruby Tuesday directors denied that charge, and a majority of shareholders approved the company’s sale.

Locally, the chain has two restaurants in Alcoa and one each in Athens, Knoxville, Lenoir City, Morristown, Powell and Sevierville.

Overall, as of Dec. 1, Ruby Tuesday had 541 corporate and 55 franchise locations in the U.S. and 15 other countries.

The wave of purchases of local companies shows the global business community is paying more attention to Knoxville, seeing value in this area’s people and products, Field said. The same goes for a continuing flow of outside investment, and plant locations such as Lifetime, he said.

In August, plastic kayak maker Lifetime Products opened in Eastbridge Business Park. The Utah-based company plans to create 500 jobs over five years in northeast Knoxville. Initial jobs were projected to pay $37,000 on average. Lifetime got more than $2.67 million in state and county incentives for the project, mostly from an eight-year PILOT, or payment in lieu of taxes.

Fox said the impact of those big sales won’t become evident until after the fact.

“That’s a really big question mark, I think, as far as the Knoxville community,” he said.

Development, old and new

As economic growth continues so does construction — and redevelopment of existing buildings. For a long time redevelopment has focused on Knoxville’s downtown and the Old City, but now it’s spreading through Happy Holler, moving up Broadway and Magnolia, Ballard said.

Last year Tom Vester, Pinnacle Financial Partners commercial real estate manager in Knoxville, predicted that future development would march along various corridors radiating from downtown.

The success of Knoxville’s downtown redevelopment means only a few sites are left there, he said. So developers Vester dealt with were working on Depot Avenue and Happy Holler, and would soon move up Magnolia and down Chapman Highway, he said. That holds true now, Vester confirmed.

“I am seeing more of the same with the redevelopment continuing to move from downtown and heading north, south and east,” he said.

The guidelines for that development may change, too. The Knoxville-Knox County Metropolitan Planning Commission is updating the city’s 6-decadeold zoning ordinance. After a long period of public comment and revision, a final version may be presented to Knoxville City Council in late 2018, according to MPC Executive Director Gerald Green.

Major changes to existing codes are on hold until the new ordinance is ready. It’s expected to allow much more mixed use development and make it easier to maintain neighborhoods’ existing character. Consultants also propose creation of “special purpose” districts for government, educational or health care institutions, farming and natural areas.

Dollar General’s announcement last fall that it planned to tear down a decades- old former pie factory on North Central Street and build a new store galvanized efforts to guide and control redevelopment along that corridor. The company withdrew those plans, and Joe Fox of Realty Executives said in October he and partners would buy and renovate the old building, seeking a tenant “suitable for the Central Street corridor.”

Field sees growth continuing on corridors such as Clinton Highway, but especially in South Knoxville. He expects to see more investment there; restaurants and retail establishments are already popping up in parts of South Knoxville where they wouldn’t have been considered before, he said.

In a sign of South Knoxville’s growth, investors bought the 1931 Kern’s Bakery building for $3.1 million at the start of October, planning to turn it into a restaurant, brewery and entertainment center to draw people from downtown across the Henley Street Bridge.

City officials had helped maintain the building, which sat empty since 2012, because they consider the area ripe for redevelopment and a surge of new residents.

But not every area is doing well. This could be the year East Towne Mall turns out the lights.

The mall at 3001 Knoxville Center Drive opened in 1984, was renovated in 1997, but has declined for years. A local investment group called Knoxville Partners bought the mall, now called Knoxville Center, in August 2016.

According to spokesman Patrick King, Knoxville Partners are some of the same investors involved in development firm Henry & Wallace.

The new owners said they would remodel the mall as a mixed-use facility, including medical offices on the second floor of the Sears wing. But by the end of 2017 the only visible change was a new wall across that section.

Meanwhile, tenants reported rent quintupling, and occupants fled. In early 2016 the mall had about 60 tenants, but now that has dropped by a third. J.C. Penney closed, Sci-Fi City and Chick-fil-A are leaving, and growing fears of a Sears corporate bankruptcy could leave Belk as the mall’s only anchor store.

Innovation, entrepreneurship

In two decades of involvement with local entrepreneurship, Ballard said, he doesn’t think he’s ever seen the quantity and quality of startups this good.

Thanks to efforts from several local groups, the startup scene is in full bloom after about five years of development, and Field expects to see executives at existing companies branch out on their own.

The overall good economy makes existing businesses more likely to launch new products or explore new markets also, he said.

“All that spells job creation,” Field said.

Ballard said Memphis is known for logistics and medical devices, Nashville for health IT and music, Chattanooga for its tech startups driven by municipal 1-gigabit internet — but what about Knoxville?

“Knoxville doesn’t have a single defining technology area around which to galvanize startups,” Ballard said.

But a theme may be emerging. More local startups are working in additive manufacturing, composite materials and 3-D printing, Ballard said.

Much of that growth is nourished by the University of Tennessee and Oak Ridge National Laboratory, so how well those institutions are funded at the state and federal level can have a big impact on Knoxville’s fledgling businesses, he said. “This is an economy that relies heavily on taxpayer investments,” Ballard said.

“This is a changing, shifting landscape out there.”

Most job growth comes not from attracting big outside projects, but from local businesses, particularly startups, Fox said.

The strongest growth comes from locally grown companies that may employ only a few each.

“Ultimately, that’s more important than attracting jobs, recruiting them,” he said.

Source: Knoxville News Sentinel, by Jim Gaines

The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org